Stock market awaits Ford's results; Chrysler help questioned

KateGibson

NEW YORK (MarketWatch) -- As Ford Motor Co. braces for what could be its biggest first-quarter loss in more than 15 years, Wall Street is debating the merits of a General Motors bankruptcy and whether the U.S. should be helping Chrysler at all.

General Motors
GM, -0.48%
was among the components weighing on the Dow Jones Industrial Average
DJIA, -1.11%
on Thursday, its shares down 4.1% at $1.62 a share, 17 cents above its March 6 closing low of $1.45.

Thursday's trade had GM shares down 92% from a year ago, on April 23, 2008, when it closed at $20.94 a share.

Overall, however, the blue-chip Dow erased earlier losses to trade higher into the close, with the storied average finishing at 7,957.06, up 70.49 points, or 0.9%.

Ford
F, -0.12%
shares advanced for a second straight day after Goldman Sachs advised investors to purchase its shares before industry changes that Goldman predicts will benefit the nation's second-largest automobile maker. Read detailed report.

The stock gained 4.9% to end at $4.49, with the issue 223% ahead of its Nov. 20, 2008, low of $1.39, but down 40% from the year-ago close of $7.52.

Ford, which posted a record loss of $14.7 billion last year, is the only big U.S. automaker that's managed to continue without help from the government. The Dearborn, Mich.-based company is slated to report its first-quarter numbers on Friday.

GM's CEO last week said the nation's biggest carmaker would file for bankruptcy protection unless it finds a means of restructuring debt by June 1, while Chrysler has until the end of the month to ink a deal with Fiat to avoid bankruptcy.

GM plans to skip a $1 billion debt payment due June 1, according to a Wall Street Journal report on Wednesday. Read more.

"GM has been deemed too big to fail outright, but Chrysler is facing a do or die set of negotiations with debt holders, its potential foreign partner, Fiat, its unions, and the U.S. Treasury," said Ncholas Colas, chief market strategist at BNY ConvergEx Group.

The New York Times cited people close to the situation in reporting that the Treasury Department is readying a Chapter 11 bankruptcy filing for Chrysler that could come as early as next week. Separately, Italian automaker Fiat is poised to complete its alliance with Chrysler during the bankruptcy, the Times reported.

Chrysler's assets include Jeep, the Dodge truck and the Mopar aftermarket parts business, making the company worth "up to $10 billion to the right buyers in a recovering market," said Colas.

Cash guzzlers

The cash being burned by the automakers should push both Chrysler and GM into bankruptcy, other than the fact that Chrysler's largest bond holders are big financial institutions that have also received government funds, the analyst said.

"They are all TARP banks that need to worry what the current administration thinks about their actions. Is it worth throwing a large industrial company into bankruptcy if that antagonizes members of Congress and the president?" asks Colas.

"Chapter 11 is not the end of the world or GM's operation. Given the political climate, many will cheer a bankruptcy," the analyst said.

Chrysler's troubles were well known when the company was purchased nearly two years ago by private investment firm Cerberus Capital Management, contends Dan Greenhaus, an analyst at Miller Tabak & Co. He argues that there is "no systemic threat whatsoever from a Chrysler bankruptcy or liquidation."

"It appears Treasury is willing to increase its offer to repay Chrysler senior lenders. I fail to see why the government should be providing any assistance whatsoever to Chrysler," said Greenhaus.

"We're never going to get efficient and profitable car companies in this country if we prop up the weakest and least efficient," said Greenhaus.

Given the current market sentiment is generally positive, any resolution to Chrysler's situation would likely be "more of a relief than anything else," said Colas.

But, once the Chrysler issue is resolved, "all eyes will turn to GM, where even a careful bankruptcy will be a tough slog," Colas said.

Greenhaus does not believe the government should be supporting any of the automakers, but concedes "an argument can be made to help GM get through this time."

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